The latest issue of the NFIB Small Business Economic Trends is out today. The headline number for February came in at 92.9, down 1.0 from the previous month's 93.9. The index is at the 17th percentile in this series.
Today's number came in below the Investing.com forecast of a rise to 94.5.
Here is an excerpt from the opening summary of the news release.
None of the 10 Index components posted a gain, six posted small declines, and four were unchanged. Overall, a “ho hum” outcome, confirming that the small business sector is not headed up with any strength, just treading water waiting for a good reason to invest in the future. Spending and hiring plans weakened a bit as expectations for growth in real sales volumes fell. Earnings trends worsened a bit as owners continued to report widespread gains in worker compensation while holding the line on price increases. The political climate continued to be the second most frequently cited reason for the current period being a bad time to expand.
The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize that dramatic change in small-business sentiment that accompanied the Great Financial Crisis. Compare, for example, the relative resilience of the index during the 2000-2003 collapse of the Tech Bubble with the far weaker readings following the Great Recession that ended in June 2009.
Here is a closer look at the indicator since the turn of the century.
The average monthly change in this indicator is 1.3 points. To smooth out the noise of volatility here is a 3-month moving average of the Optimism Index along with the monthly values, shown as dots.
Here are some excerpts from the report.
Labor Markets
Reported job creation reversed in February, with an average employment change per firm falling to a decline in employment of -0.12 workers per firm. The employment question “looks back” over the prior three months, likely reflecting some of the poor GDP performance in the fourth quarter. Forty-nine percent reported hiring or trying to hire (down 3 points), but 42 percent reported few or no qualified applicants for the positions they were trying to fill.
Inflation
How effective has the Fed's monetary policy been in lifting inflation to it two percent target rate?
Nineteen percent of the NFIB owners reported reducing their average selling prices in the past three months (up 1 point), and 15 percent reported price increases (up 2 points). Seasonally adjusted, the net percent of owners raising selling prices was negative 4 percent, unchanged from January. Obviously more evidence that the Fed’s policies aimed at producing inflation are not working.
Credit Markets
Has the Fed's zero interest rate policy and quantitative easing had a positive impact on Small Businesses?
Four percent of owners reported that all their borrowing needs were not satisfied, 2 points above the record low reached in September 2015. Thirty-one percent reported all credit needs met (down 4 points), and 52 percent explicitly said they did not want a loan. Thirty-one percent of all owners reported borrowing on a regular basis, down 2 points. The average rate paid on short maturity loans fell 10 basis points to 5.3 percent. Loan demand remains historically weak, owners can’t find many good reasons to borrow to invest when expectations for growth are not very positive.
NFIB Commentary
This month's "Commentary" section includes the following observations:
Monthly management of monetary policy using data subject to substantial revision is inconsistent with the acknowledged lags in policy and not supportive of real growth which requires more policy consistency. Financial markets of course thrive on the variability such policies produce and support a zero interest-rate policy (ZIRP). Meanwhile, compared to 2009, consumer interest income is down cumulatively over trillion dollars, an unhappy side effect of Fed policies.
Business Optimism and Consumer Confidence
The next chart is an overlay of the Business Optimism Index and the Conference Board Consumer Confidence Index. The consumer measure is the more volatile of the two, so it is plotted on a separate axis to give a better comparison of the volatility from the common baseline of 100.
These two measures of mood have been highly correlated since the early days of the Great Recession.
Related:
$20 Trillion in Debt, Financial Repression, and Gold's Blast-off
